Shock transmission from global financial stress, bitcoin sentiment indices, U.S. and euro financial market uncertainty toward the GCC stock volatility
Most prior studies explain cross-country volatility interconnectedness without accounting for exogenous global uncertainty factors that influence equity returns. This study is the first to explore how major global uncertainty indicators such as U.S. and European financial market uncertainty indices...
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Taylor & Francis Group
2025-12-01
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| Series: | Cogent Business & Management |
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| Online Access: | https://www.tandfonline.com/doi/10.1080/23311975.2025.2514811 |
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| author | Abdullah A. Aljughaiman Mosab I. Tabash Suzan Sameer Issa Abdulateif A. Almulhim |
| author_facet | Abdullah A. Aljughaiman Mosab I. Tabash Suzan Sameer Issa Abdulateif A. Almulhim |
| author_sort | Abdullah A. Aljughaiman |
| collection | DOAJ |
| description | Most prior studies explain cross-country volatility interconnectedness without accounting for exogenous global uncertainty factors that influence equity returns. This study is the first to explore how major global uncertainty indicators such as U.S. and European financial market uncertainty indices (CBOE volatility index (VIX), VSTOXX-50), Global Financial Stress Indices (FSI) and Bitcoin Sentiment Indices (BSI) transmit shocks to the conditional volatility of Gulf Cooperation Council (GCC) stock markets. Using a novel ‘Extended Joint’ time-varying parameter vector autoregression (TVP-VAR) connectedness framework, the analysis addresses rolling-window limitations, enhances robustness to outliers, accommodates structural shifts and explains the shock transmission mechanism for the overall investment horizon. To capture transitory (short-term) and enduring (long-term) shock transmission channels from global uncertainty indicators toward the GCC financial system, a frequency-domain TVP-VAR is also employed. Furthermore, for the portfolio optimization, we also employ the hedge ratio and optimal portfolio weight strategy based on the DCC-GARCH-t copulas. Findings reveal that the conditional volatility of equity markets in Oman, Qatar, Saudi Arabia and the UAE is more sensitive to shocks from global uncertainty indicators such as VIX, VSTOXX-50 and the FSI, while Bahrain’s market shows relatively lower exposure. Kuwait’s equity market volatility exhibits the highest long-term sensitivity to FSI, VIX and VSTOXX-50, whereas the UAE demonstrates the highest sustained exposure to VIX and VSTOXX-50. Results from the DCC-GARCH-t copula model indicate that in stable periods (pre-COVID-19), optimized portfolio allocations significantly improved diversification, reducing risk by up to 83%. However, during financial stress events like COVID-19, hedge ratio strategies provided more effective risk mitigation, with reductions ranging from 3% to 43%. |
| format | Article |
| id | doaj-art-a3dd1a4db70b4a178abff75616be827d |
| institution | DOAJ |
| issn | 2331-1975 |
| language | English |
| publishDate | 2025-12-01 |
| publisher | Taylor & Francis Group |
| record_format | Article |
| series | Cogent Business & Management |
| spelling | doaj-art-a3dd1a4db70b4a178abff75616be827d2025-08-20T02:39:38ZengTaylor & Francis GroupCogent Business & Management2331-19752025-12-0112110.1080/23311975.2025.2514811Shock transmission from global financial stress, bitcoin sentiment indices, U.S. and euro financial market uncertainty toward the GCC stock volatilityAbdullah A. Aljughaiman0Mosab I. Tabash1Suzan Sameer Issa2Abdulateif A. Almulhim3Finance Department, School of Business, King Faisal university, Al hafouf, Saudi ArabiaCollege of Business, Al Ain University, Al Ain, United Arab EmiratesFaculty of Administrative and Financial Sciences, University of Petra, Amman, JordanFinance Department, School of Business, King Faisal university, Al hafouf, Saudi ArabiaMost prior studies explain cross-country volatility interconnectedness without accounting for exogenous global uncertainty factors that influence equity returns. This study is the first to explore how major global uncertainty indicators such as U.S. and European financial market uncertainty indices (CBOE volatility index (VIX), VSTOXX-50), Global Financial Stress Indices (FSI) and Bitcoin Sentiment Indices (BSI) transmit shocks to the conditional volatility of Gulf Cooperation Council (GCC) stock markets. Using a novel ‘Extended Joint’ time-varying parameter vector autoregression (TVP-VAR) connectedness framework, the analysis addresses rolling-window limitations, enhances robustness to outliers, accommodates structural shifts and explains the shock transmission mechanism for the overall investment horizon. To capture transitory (short-term) and enduring (long-term) shock transmission channels from global uncertainty indicators toward the GCC financial system, a frequency-domain TVP-VAR is also employed. Furthermore, for the portfolio optimization, we also employ the hedge ratio and optimal portfolio weight strategy based on the DCC-GARCH-t copulas. Findings reveal that the conditional volatility of equity markets in Oman, Qatar, Saudi Arabia and the UAE is more sensitive to shocks from global uncertainty indicators such as VIX, VSTOXX-50 and the FSI, while Bahrain’s market shows relatively lower exposure. Kuwait’s equity market volatility exhibits the highest long-term sensitivity to FSI, VIX and VSTOXX-50, whereas the UAE demonstrates the highest sustained exposure to VIX and VSTOXX-50. Results from the DCC-GARCH-t copula model indicate that in stable periods (pre-COVID-19), optimized portfolio allocations significantly improved diversification, reducing risk by up to 83%. However, during financial stress events like COVID-19, hedge ratio strategies provided more effective risk mitigation, with reductions ranging from 3% to 43%.https://www.tandfonline.com/doi/10.1080/23311975.2025.2514811GCC stock marketsglobal financial stressVIXVSTOXX-50Bitcoin sentiment indicesTVP-VAR |
| spellingShingle | Abdullah A. Aljughaiman Mosab I. Tabash Suzan Sameer Issa Abdulateif A. Almulhim Shock transmission from global financial stress, bitcoin sentiment indices, U.S. and euro financial market uncertainty toward the GCC stock volatility Cogent Business & Management GCC stock markets global financial stress VIX VSTOXX-50 Bitcoin sentiment indices TVP-VAR |
| title | Shock transmission from global financial stress, bitcoin sentiment indices, U.S. and euro financial market uncertainty toward the GCC stock volatility |
| title_full | Shock transmission from global financial stress, bitcoin sentiment indices, U.S. and euro financial market uncertainty toward the GCC stock volatility |
| title_fullStr | Shock transmission from global financial stress, bitcoin sentiment indices, U.S. and euro financial market uncertainty toward the GCC stock volatility |
| title_full_unstemmed | Shock transmission from global financial stress, bitcoin sentiment indices, U.S. and euro financial market uncertainty toward the GCC stock volatility |
| title_short | Shock transmission from global financial stress, bitcoin sentiment indices, U.S. and euro financial market uncertainty toward the GCC stock volatility |
| title_sort | shock transmission from global financial stress bitcoin sentiment indices u s and euro financial market uncertainty toward the gcc stock volatility |
| topic | GCC stock markets global financial stress VIX VSTOXX-50 Bitcoin sentiment indices TVP-VAR |
| url | https://www.tandfonline.com/doi/10.1080/23311975.2025.2514811 |
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